Unpacking the new consolidated entity disclosures

As a result of the introduction of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023, from 30 June 2024 onwards, Australian public companies who prepare a consolidated financial report (except those companies that report to the ACNC) must include a new consolidated entity disclosure statement (CEDS) in their financial report.

What must relevant companies disclose?

In the consolidated financial report, companies are required to disclose with no materiality applied:

• Name of the entity
• Whether the entity is a body corporate, partnership or trust
• Whether the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity
• Where the entity was incorporated or formed
• Where the entity is a body corporate with capital, the percentage of share capital directly or indirectly held by the public company
• Whether the entity was an Australian resident or foreign. resident within the meaning of the Income Tax Assessment Act 1997, and
• If the entity is a foreign resident, a list of each foreign jurisdiction in which the entity is a resident for the purposes of the law of the foreign jurisdiction.

An example of the required disclosure is illustrated below:

Consolidated Entity Disclosure Statement as at 30 June 2024.

^ These entities are also a tax resident in their respective countries of incorporation. However, they are assessed as an Australian resident under the Income Tax Assessment Act 1997 and therefore not classified as a foreign resident under the Act (not required disclosure but may stop questions from stakeholders if disclosed).
* Type of entity noted above are illustrations only and could be different depending on the actual type of entity.

Frequently asked questions

1. Where do companies disclose the consolidated entity disclosure statements (CEDS)?

The CEDS do not form part of the financial statements and should not be included in the notes to the financial statements but have to be reported in the Financial Report. It is likely that the CEDS would follow after the notes to the financial statements.

2. Can the disclosure be made in the controlled entities note?

No. As noted above the disclosure has to be made outside of the financial statements.

3. What if the company does not have any subsidiaries?

There may be instances where a public company has no subsidiaries and therefore does not prepare consolidated financial statements. If the company has no subsidiaries and are not required to prepare consolidated financial statements, then the company must provide a
statement to that affect. 

Suggested wording:

Consolidated Entity Disclosure Statement as at 30 June 2024.

Subsection 295(3A) (a) of the Corporations Act 2001 does not apply to the company. This is because the company is not required to prepare consolidated financial statements by Australian Accounting Standards.

4. What is true and correct?

The new requirements introduce the concept of the information being ‘true and correct’ with this requirement applying to: 

• The Directors’ Declaration in the Financial Report, must include a statement that the CEDS is ‘true and correct’.
• For listed companies The CEO and CFO Declaration must include in their declaration on the Financial Report a statement that the CEDS is ‘true and correct’
• ASIC notes that ‘true and correct’ is a higher reporting requirement than under a ‘true and fair view or fair presentation framework’. 

ASIC notes that ‘true and correct’ is a higher reporting requirement than under a ‘true and fair view or fair presentation framework’.

Suggested wording:

Consolidated Entity Disclosure Statement as at 30 June 2024.

The company has prepared a Consolidated Disclosure Statement that can be found on page XX of the financial report in line with the requirements of Subsection 295(3A) (a) of the Corporations Act 2001. The Consolidated Disclosure Statement is True and Correct as at 30 June 2024.

5. Why is materiality not applied for CEDS disclosure? 

ASIC notes that materiality under accounting standards does not apply to the CEDS because it is a separate legal requirement under the Corporations Act. Therefore, a public company must disclose all entities in the consolidated entity at year end, regardless of whether they are not material to the group. This means that all entities must be disclosed even if they are newly acquired ‘shelf’ companies, or dormant companies or companies that have not been consolidated based on materiality for accounting purposes.

ASIC Info Sheet 284 is a helpful resource 

ASIC has published Info Sheet 284 to provide guidance to public companies to ensure that the CEDS are compliant with the requirements of Corporations Act 2001.

What it means to audit the CEDS

While directors cannot prepare CEDs on a true and fair basis, as auditors under the reasonable assurance framework, auditors can apply materiality as it underpins the concept of reasonable assurance. 

The auditor will need to conduct specific work in relation to the required CEDS disclosures which will be in addition to the level of procedures previously completed for the controlled entities note in the financial statements.

Depending on the structure and determination of foreign tax jurisdictions from a completeness and accuracy perspective the auditor may or may not be able to issue an unmodified auditors opinion.

An unmodified auditors opinion would likely look like this:

Opinion

We have audited the financial report of ABC Company Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 20X1, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including material accounting policy information, the consolidated entity disclosure statement and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

i. giving a true and fair view of the Group’s financial position as at 30 June 20X1 and of its financial performance for the year then ended; and 

ii. complying with Australian Accounting Standards and the Corporations Regulations 2001.

Note that the auditor’s responsibility paragraph does not change as a result of the additional wording in the auditor’s opinion paragraph.